The federal government has approved Nigeria’s Medium-Term Debt Management Strategy (MTDS) for 2024–2027, setting a ceiling of 60 percent for the debt-to-gross domestic product (GDP) ratio.
However, some analysts say the success of the MTDS will depend on government’s ability to manage debt effectively, prioritise productive investments, and ensure fiscal discipline.
Specifically, they observe that the current ‘financial impunity and growing costs of governance’ tend to erode confidence in government policies, no matter, how well intentioned
In a statement, the Debt Management Office (DMO) said the MTDS, developed with technical support from the World Bank and International Monetary Fund (IMF), is designed to ensure debt sustainability while meeting the country’s financing needs.
“The key objectives of the MTDS are to meet the Government’s financing needs and payment obligations in the short to medium term, taking into consideration the costs and risks trade-offs in the debt portfolio,” the DMO said.
It added that the framework seeks to balance borrowing costs with associated risks, deepen the domestic securities market, and optimise Nigeria’s debt composition.
According to the DMO, nominal debt as a percentage of GDP is expected to be capped at 60 percent by 2027, compared to 52.25 percent at the end of December 2024. Interest payments will not exceed 4.5 percent of GDP, up from 3.75 percent in 2024, while sovereign guarantees will remain below 5 percent of GDP, up from 2.09 percent.
The composition of the debt portfolio has also been revised, with the domestic-to-external debt mix now set at 55:45 compared to 48:52 previously. At least 75 percent of domestic borrowing will be long-term instruments, while a maximum of 25 percent will be short-term. Debt maturing within one year will not exceed 15 percent of the total portfolio, the agency said.
Foreign exchange (FX) debt is to be capped at 45 percent of total debt. The DMO added that Nigeria’s average debt maturity of 11.05 years and average time to refixing of 10.74 years already exceed the minimum thresholds of 10 years under the new strategy, reflecting relative stability in the debt structure.
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The DMO noted that in 2022 it deployed economic tools and strategies in contracting loans for the federal government, with the aim of ensuring debt sustainability.
According to other views by the analysts the strategy aims to balance borrowing costs with associated risks, ensuring debt sustainability and reducing the risk of debt distress.
Similarly, they opined that by adjusting the domestic-to-external debt mix to 55:45, Nigeria reduces its foreign exchange risk exposure, which can help mitigate the impact of naira fluctuations.
The implication, they added, is that it has the potential of reassuring investors, credit rating agencies, and international partners of Nigeria’s commitment to responsible debt management and fiscal discipline.
Advising government to prioritise the economic and social welfare of the citizens, they emphasized the need for transparency in governance, adding, “If the borrowed funds are invested in productive sectors, such as infrastructure, agriculture, and social services, the strategy could promote economic growth and improve citizens’ well-being.
Also, if the debt burden becomes unsustainable, it may lead to a debt overhang, limiting the government’s ability to provide essential services and potentially negatively impacting citizens’ living standards,”.
Taking a holistic view, and with the benefits of hindsight of ocassional policy flip-flops and summersault, they said the Debt-to-GDP ratio is expected to rise from 52.25% in 2024 to 60% by 2027, potentially increasing the debt burden on the economy.
Higher Interest Payments, they further argue, would mean interest payments-to-GDP ratio will be capped at 4.5%, up from 3.75% in 2024, which may divert funds from essential public services.
“If not managed carefully, the increased debt burden and higher interest payments could strain fiscal stability and limit the government’s ability to respond to economic shocks,” an analyst said.
